South Korea’s TDP Margins Plunge 170% on Month Amid Tight Supply

South Korea’s September monthly average toluene disproportionation margins—which measure the profitability of converting toluene into downstream benzene and mixed xylenes or MX—plunged 170% month on month to minus $16.45 per metric ton FOB Korea, according to OPIS data. Persistently negative margins typically prompt producers to reduce their TDP operating rates or shut down plants entirely.

Run cuts, prioritization of fuel production and plant maintenances in September and October led to a toluene supply squeeze. Yeochun NCC’s 117,000 mt/year toluene plant in Yeosu begun a routine three-month maintenance in September, according to data from Chemical Market Analytics by OPIS while Lotte Chemical’s Daesan cracker and benzene, toluene and xylene units were shut down on Sept. 1 as planned.

Looking ahead, heavy plant maintenances across October and November are expected to intensify supply constraints. According to CMA data, South Korea’s production capacity taken offline due to turnarounds surged from 28,000 mt in September to 123,000 mt in October. The supply tightness is expected to persist in November, with approximately 74,000 mt of capacity remaining offline.

SK Geo Centric Co. is expected to take its 400,000 mt/year toluene plant in Ulsan offline for routine maintenance. SK Incheon Petrochem Co.’s 590,000 mt/year toluene plants in Incheon, LG Chemical’s 150,000 mt/year toluene plant in Yeosu and Korea Petrochemical Industries Co’s 100,000 mt/year toluene plant in Ulsan are also expected to commence scheduled maintenance in October extending into November.

In addition, a sharp shift in South Korea’s trade balance tightened domestic toluene supply in August. According to customs data, imports grew 41.7% month on month to 54,750.2 mt. However, exports more than doubled—surging 232.2% over the same period to 70,826.1 mt—turning the country from a net importer to a net exporter for the month. But despite the temporary reversal, the country remained a net importer on a year-to-date basis, importing 413,400.8 mt against exports of 381,662.4 mt across the first eight months.

Upstream energy markets provided additional cost-push support, with front-month Intercontinental Exchange Brent crude futures rising 15.8% month on month in September to average $102.01/bbl, according to ICE data. This strong rally in crude prices exerted upward pricing pressures across South Korea’s aromatics market, elevating FOB Korea prices.

According to OPIS data, the September monthly average for FOB Korea toluene surged 23.4% month on month to $1,153.60/mt. Over the same period, downstream product gains lagged behind: benzene rose 18.6% to average $1,161.50/mt, while MX gained 18.7% to reach $1,117.27/mt.

The rally in toluene prices thus outpaced the more modest gains seen in the downstream benzene and MX sectors. This disproportionate increase severely squeezed processing spreads and eroded profitability, driving September TDP margins into negative territory.

—Reporting by Serena Seng, serena.seng@dowjones.com; Editing by Mei-Hwen Wong, mei-hwen.wong@dowjones.com